PPB Capital Partners, LLC | 125 East Elm Street, Suite 200 |
Conshohocken, PA 19428 |t.484.278.4017 |
www.ppbcapitalpartners.com
Trends in Workforce Housing Post COVID-19
Conshohocken, PA, October 12, 2020 - As market volatility picks
up before the election, wealth advisors continue to seek out
uncorrelated return streams and new sources of income. Real estate
investing has brought many of these solutions in the past, but the
pandemic has created a bifurcated real estate market.
With record low interest rates, the residential housing sector
is booming, particularly in the medium to higher-end price points.
In particular, suburban real estate prices are soaring, as more
people move out of urban centers creating more demand and current
inventory levels are limited. In contrast, the hospitality sector
and office space remain under stress as the long-term implications
of COVID-19 remain unknown.
Within residential real estate there is further bifurcation as
global capital flowing into multifamily is down almost 50% year
over year for the first half of 2020.1 (CBRE Chart)
While most larger investors have focused on urban centers and
Class A properties historically, workforce housing has remained an
underserviced segment of the multifamily market. Workforce housing
is defined as housing that is affordable to households earning 60%
to 120% of area median income (AMI). This segment of the market
has
250 Cumulative
Years of Experience
$1.7B+ Total Capital Committed
250+ Investments
Made National Footprint
PPB Capital Partners, LLC | 125 East Elm Street, Suite 200 |
Conshohocken, PA 19428 |t.484.278.4017 |
www.ppbcapitalpartners.com
historically been recession-proof, which was demonstrated during
the last recession in 2008. Properties maintained high occupancy
rates as the renters were renting by necessity, not choice.
Despite the stability in this segment, there has been a
significant shortage of workforce housing available as most new
development has focused on properties generating higher rents per
unit. Less than 3% of all newly developed apartments over the last
decade are considered affordable to AMI earners. As renters
continue to move out of pricier units due to the pandemic and its
implications on families worldwide, vacancy rates in workforce
housing are at 20-year lows.
Because most institutional investors and the larger public REITs
are focused on bigger properties in major cities which command
higher rents, many larger allocators are underweight workforce
housing and have limited opportunities to access this subset of the
multifamily market.
We believe investors would be wise to look for smaller, more
nimble managers to fill workforce housing mandates. These fund
managers are well positioned to deliver stable income to investors.
While cap rates have continued to compress, the record interest
rate environment has kept rent spreads at attractive levels.
Workforce housing remains a compelling investment, especially as
investors ponder the direction of the public markets and move
beyond traditional fixed income in their search for yield.
For more information on how to access dedicated workforce,
multifamily real estate strategies, please contact Frank Burke,
CFA, CAIA, Chief Investment Officer, PPB Capital Partners,
484.278.4017 Ext. 108
Important Footnotes and Disclosures Chart 1 Source:
https://www.cbre.us/research-and-reports/US-Multifamily-Inbound-Investment-Trends-H1-2020
Note: All data presented is based on real estate transactions
valued at $2.5 million and above. Volume includes direct
multifamily property acquisitions only (as opposed to other types
of investment such as land acquisitions and new development, REIT
stock purchases, capital partnerships, etc.). Portfolios include
assets acquired through entity-level deals. All figures in U.S.
dollars. Source: CBRE Research, Real Capital Analytics, Q2 2020.
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and such information may be incomplete or condensed. PPB Advisors,
LLC is an affiliate of PPB Capital Partners, LLC by virtue of
common control or ownership.